Impact of GST on Special Economic Zone – Part II

In our previous article, we discussed various schemes rolled out for the promotion of business in Special Economic Zones. To continue our discussion further, we are now analyzing the implications, that GST has brought along on units operating in SEZs. As of today, thousands of units are operating from these SEZs across India.

Latest Update

Union budget 2021 Outcome:
Few of the items on which Customs Duty Rates are revised are as follows: -a) Reduced duty on copper scrap from 5% to 2.5%
b) Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced
c) Increased duty on solar inverters from 5% to 20% – Raised duty on solar lanterns from 5% to 15%
d) The basic customs duty on gold and silver reduced
e) The department will rationalise duty on textile, chemicals and other products
f) The revised rates will be applicable from 2nd February 2021 onwards.

These units are now set to face fresh challenges with the introduction of GST. While these units are enjoying exemption from Services Tax, Central Sales Tax and in some cases Value Added Tax (VAT), this may not be the case under GST regime. Currently, all Goods and Services provided from a unit operating from SEZ to a business in Domestic Tariff Area (DTA) is considered as an import. Accordingly, Basic Customs Duty (BCD) and Countervailing Duty (CVD) are levied on such sale from a SEZ to DTA.  

GST is already set to subsume CVD and SAD, thus going forward BCD and Integrated Goods and Services Tax (IGST) will be charged on such supplies made from SEZ. Also, the buyer will have the credit of IGST available to set off against the liability of CGST and SGST subject to prescribed conditions.

Some of the benefits and exemptions that SEZ operators are eying from GST are:

• Supplies into SEZ to be exempt from GST and be treated as export outside India
• Easy Refund Procedure of input GST paid on procurement of Goods and Services if any.
• Minimalistic Compliance Requirement and Return Filing Procedure

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